As the year starts, one of the many questions plaguing financial analysts is whether the rate of inflation will go higher. The current global economic condition does not help in answering the question as the top world currencies are not at their best. One reason that may lead to increased inflation is the rate of increase of income that is disposable. As the days go by, people are being paid more and more lucratively meaning there is an increase in the amount of income they can dispose. The effect this has is creating increased demand for goods and services and this will raise the inflation rate.
The other factor that is being keen watched is the availability of nominal money supply. The moment money supply is increased without increase in the money’s output ratio; the rate of inflation will rise higher. This has happened before and experts are just waiting and studying the global finance scenario to see if it happens again. The bad thing about this factor is that the rate of inflation rises in a corresponding manner with the increase in money supply.
Another worrying scenario that might serve to increase the rate of inflation is availability of credit services. In today’s world, getting loans is not hard and the moment a lot of people have access to these loaned monies, the demand for goods and services increases since there is more money to be spent. The more this happens the more the rate of inflation goes up. This scenario is known as credit-induced inflation in financial jargon. One way of controlling it is by limiting the availability of money in credit form by increasing the lending rates.
The private industrial sector in world leading countries is also being watched keenly to see what expansions it has in store. The private sector has never had money issues and the moment an expansion is planned, millions of dollars are pumped into the project. This leads to increased employment which in turn means that people have more money to spend. The long term effect of this is increased inflation. As all these factors change, the question is, are we going to see an increase in inflation?